We thought it was time to check in with another edition of the Live Big Digest to brighten your day. The title of this issue of the LBD is inspired by a recent New Yorker article by Wisdom of Crowds author James Surowiecki called “Year of the Yo-Yo.” Surwiecki, noting the economic turmoil of last year, suggests that “you might think that volatility would allow people with superior information and market sense to get ahead.” Of course, you know what comes next: active mutual fund managers, in fact, almost universally fell short of their benchmarks in 2011, with some of the superstar managers producing the worst results. Bruce Berkowitz, named one of the “managers of the decade” by Morningstar, steered his flagship mutual fund to a 30% loss. John Paulson, meanwhile, who was credited with the “greatest trade ever” for his bet against mortgage-backed securities a few years ago, saw one of his funds fall by 50%. Beating the market by being nimble requires the kind of perfect foresight that no human can possess. Any time it looks like someone does, just wait a while and subsequent events will reveal that what appeared to be skill was just luck. In the end, building resilience into one’s portfolio – indeed, into all of one’s financial arrangements – is the only sure way to succeed over the long-run.
Another worthwhile read comes from a speech recently delivered by the president of the Federal Reserve Bank of San Francisco, rather prosaically titled “The Federal Reserve and the Economic Recovery.” In it, John C. Williams discusses the policy responses of the Fed to the recent economic crisis and dispells a number of myths regarding the Fed’s policies and the impact of actions taken to avert disaster. Williams goes on to explain why the subsequent recovery has been so weak and why “economic prospects are brightening.”
We have completed the portfolio update we recently wrote about with the addition of the DFA Emerging Market Core fund to all client portfolios. If you haven’t already done so, you can review our reasons by reading “The Case for Emerging Markets,” and/or spending 23 minutes with our recorded presentation “Review and Outlook, 2011-2012.”
March 29: Virginia Office Client Open House
June – July: Elissa and Dave’s one-month sabbatical
Best wishes to you and yours!
The Yeske Buie Team